Mothercare's profit beat boosts turnaround hopes

Reuters Staff

3 Min Read

Customers leave a Mothercare shop in London October 11, 2008. REUTERS/Suzanne Plunkett

LONDON (Reuters) - British baby goods retailer Mothercare (MTC.L) beat full-year profit forecasts and said improved trading had continued into its new financial year, raising hopes a turnaround drive is taking hold and sending its shares up as much as 20 percent.

The firm, which has been hit hard by cut-price competition from supermarket groups and online retailers in its main UK market, has been trying to fight back by revamping stores, closing weaker ones and expanding online and abroad.

It reported on Thursday an underlying pretax profit of 9.5 million pounds for the year ended March 29.

That was a 61 percent increase on a restated 5.9 million pounds a year earlier and ahead of analyst forecasts of 8.3 million pounds, due to lower financing costs.

Sales in Britain fell 1.9 percent on a like-for-like basis, improving on a 3.6 percent fall a year earlier, with losses narrowing 0.5 percent to 21.5 million pounds.

In its stronger overseas arm, profit rose 7.6 percent to 45.3 million pounds, with underlying sales up 2.5 percent.

“Mothercare is making progress towards breakeven in the UK in due course and has laid the foundations for further positive growth in International in the year ahead,” JP Morgan analysts said in a research note.

At 1155 BST Mothercare shares, which started the day down 54 percent on a year ago, were up 16 percent at 161 pence.

The group, which has over 1,200 stores worldwide, said a search for a new chief executive was ongoing. The firm named ex-Shop Direct boss Mark Newton-Jones as its interim CEO in March, after Simon Calver quit in February following weak Christmas trading which later forced a profit warning. Mothercare said it had agreed with lenders to increase its debt facilities by 10 million pounds to 100 million pounds, just seven months after its last refinancing, in order to give more flexibility to its turn around push.

Due to continued currency weakness, the firm also said it had hedged its Russian rouble, Indian rupee and Indonesian rupiah exposure for the first half of its new fiscal year.